North Carolina

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This week, the Pittsburgh Post-Gazette urged lawmakers to increase the federal minimum wage and EITC together to fight poverty and policy advocates urged for the creation of a state EITC in West Virginia.

Highlights from last week include a new report from the Center on Budget and Policy Priorities that recommends simultaneously strengthening state EITCs and minimum wages, North Carolina’s Vance County commissioners prioritizing reinstatement of the state’s EITC, and a Massachusetts gubernatorial candidate vowing the protect the state’s EITC and property tax circuit breaker.

State EITC: No. A North Carolina EITC was enacted in 2007 and expanded in 2008, extended in 2012, then eliminated beginning in 2014.

Formula: 5 percent of federal EITC through 2012; 4.5% in 2013.

News/Notes: The state EITC was originally created during the 2007 legislative session and was set at 3.5 percent of the federal credit. The North Carolina legislature increased the state EITC to 5 percent during the 2008 legislative session. In 2009, it also introduced a bill to further expand the state EITC to 6.5 percent of the federal credit, but it did not pass. The North Carolina Department of Revenue estimates that North Carolinians will claim $81.2 million through the state’s EITC in tax year 2010. North Carolina’s EITC is scheduled to expire in 2013.

In February 2011, HB 93 and SB 117 were introduced to eliminate the refundable portion of the state’s EITC. After extensive debate in committee, during which members from both sides of the aisle indicated concerns with this proposal, the vote was postponed and the legislature never moved forward with this effort.

In June 2012 the House (HB 1025) and Senate (S827) passed a bill that has been signed by the Governor that extends the EITC for one year.

On February 13, 2013, the North Carolina House Finance Committee voted to reduce the state EITC from 5 percent to 4.5 percent of the federal credit for tax year 2013. While any cut would be disturbing, there had been concerns that they would try to replace the EITC with an alternative plan to eliminate taxes on the first $35,000 of income. This proposal would prevent low-income people from paying income taxes, but it would do nothing to offset other state and local taxes and little to reduce poverty or support low-wage workers.

On February 20th the full House passed this bill, House Bill 82, and the Senate passed it on March 6th; on March 12 the Governor signed it into law.

North Carolina’s EITC was eliminated in December 2013, effective beginning January 1, 2014.

A bill filed by House Democrats in February 2015 would reinstate the state’s Earned Income Tax Credit (EITC), eliminated in 2013.

Eligibility: Residents who are entitled to claim the federal Child Tax Credit may claim a “Credit for Children” of $100 on the State return if their adjusted gross income is less than:

$100,000 for married filing jointly

$80,000 for head of household

$60,000 for single

$50,000 for married filing separately

They may claim a credit of $125 if their adjusted gross income is less than

$40,000 for married filing jointly

$32,000 for head of household

$20,000 for single or married filing separately

News/Notes: North Carolina is one of only four states to have a state Child Tax Credit. California, like North Carolina, has a Child Tax Credit that is not tied to the federal credit. New York and Oklahoma have a Child Tax Credit based on a percentage of the federal credit. Under legislation enacted in 2013, Colorado will become the fifth state to have a Child Tax Credit, also based on the federal credit, if the United States ever passes a law to allow states to tax internet sales.

In May 2013, as part of a tax overhaul plan that would reduce the state income tax rate to 5.9% for everyone and increase the standard deduction to $12,000, House Republicans proposed increasing the state’s Child Tax Credit of $100 per child to $250 for most filers, but drop to $125 for the highest wage earners, beginning with 2014 tax returns. It is not yet clear whether the credit would be refundable. The Senate budget plan would maintain the credit at its current level.

Both House and Senate overall tax plans are predicted to raise taxes for low-income filers.

The legislature gave final approval in July to a tax plan that retains the state’s Child Tax Credit and increases it to $125 for working married couples making less than $40,000, heads of households making less than $32,000 and singles and married couples filing separately making less than $20,000 but allows the state’s Earned Income Tax Credit (EITC) to expire as planned.

News/Notes: North Carolina used to have a Child and Dependent Care Credit that varied between 13 percent and 7 percent of the expenses eligible for the federal credit, depending on filing status, income, and type of dependent. The credit was limited to $390 per dependent, not to exceed $780 total. In 2013, however, the credit was eliminated.

Eligibility: A qualifying property owner must either be at least 65 years of age or be totally and permanently disabled.

Formula: For an eligible owner whose income amount for the previous year does not exceed the income eligibility limit for the current year, which for the 2011 tax year is $27,100, the owner’s taxes will be limited to four percent of the owner’s income. For an owner whose income exceeds the income eligibility limit ($27,000) but does not exceed 150% of the income eligibility limit, which for the 2011 tax year is $40,650, the owner’s taxes will be limited to five percent of the owner’s income. However, the taxes over the limitation amount are deferred and remain a lien on the property. The last three years of deferred taxes prior to disqualifying event will become due and payable, with interest, on the date of the disqualifying event. Disqualifying events are death of the owner, transfer of the property, and failure to use the property as the owner’s permanent residence.2

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